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The Price Is Right

By: Steve Lewis

Other brokers, published reports, and market conditions are key sources in assessing property value.

Location, location, location. It’s the quintessential catch phrase of the industry. But location isn’t everything when it comes to assessing a property.  The most comprehensive assessments are based on a broker’s experience as well as their knowledge of leading trends in the market.

“With income property, a prime consideration is cap rates—they’re especially good for commodity real estate such as a stabilized (leased up to about 85%) warehouse,” says John Culbertson, SIOR, manager, Cardinal Real Estate Partners, LLC, in Charlotte, N.C. “It’s also good for other properties, like freestanding drugstores. A Walgreens with a 20-year lease in Charlotte will sell for a similar cap rate as would one in Nashville, so you have a lot of examples.”

Where it becomes difficult, he continues, is when the property is specialized real estate—i.e., a church, a coliseum, or land. “Then you look at replacement values, cap rates, and comparables,” he says.

Often, he adds, it is the owner who has the best idea of what a property is worth. “Certainly, it’s important to understand what their expectations are, and to work together to develop a consensus on what the market value might be,” says Culbertson.

“The real estate market in Germany is not as transparent as in countries like the U.S. or the U.K., but usually we research rents and prices by checking publicly available reports from brokers, local business development agencies, and experts we know,” says Tobias Schultheiß, SIOR, managing partner for Blackbird Real Estate GmbH. “Also, we compare the subject property with similar ones we’ve sold in the past.”

Next, he says, he does a site visit in order to get confirmation of the information that has been gathered. “In order to get an overview of the existing property documentation, we ask the owner for access to a (virtual) data room,” he adds. “Once all the information is checked, we run several calculations—depending on the type of property (development or income producing): (i) a German income approach including Monte Carlo simulation, (ii) an IRR calculation and (iii) an extensive 'beer cap calculation' to summarize the most relevant key figures on one piece of paper.”

While his company usually does its own research, Schultheiß says that from time to time it makes sense to ask local brokers—for example, when there are no reports available. In addition, he says, “When a potential client wants to sell its property by means of a ‘share’ deal, it can be helpful to ask a tax lawyer in order to come to an after-tax value.”

Because his background includes doing appraisals, Arlon Brown, SIOR, senior advisor, SVN | Parsons Commercial Group in Boston, says he turns to comps and income, as well as the reproduction cost “quite a bit now” because the Boston market looks at new product over reproduction costs. “I also look at financing, because in our market rates keep going down,” he adds.

Brown says he also always looks at appraisers. “I have a group I give information to and ask information from; they seem to have a pulse on what’s going on at any particular point in time,” says Brown. “But the most valuable group I talk to are other SIORs; they are on the front lines and really have their pulse on what’s happening at that moment in time.” A third group he consults is bankers. “Most people have to get a mortgage,” he offers, adding that he looks not only at rates but also at loan to value and terms.

Culbertson says, “The only time I’ll reach out for an outside appraisal is when it’s beneficial to have the concrete information provided by a very credible third party.” For example, he shares, he’s working with a large family that is selling a tract of land valued at around $5 million. “The opinions of family members vary widely—from between $8,000 to $30,000 per acre—so it’s beneficial to get an objective third party to value the property with concrete, highly credible information,” he explains. In general, however, he says he finds appraisals to be overly conservative, particularly when a “value play” could be involved.


Depending on the type of property involved, several different factors may come into consideration when determining value. Of course, there is one element that is common in all properties.

“To me, location is the key driver for value—depending on the use of the subject building,” says Schultheiß. “Historically, tenant quality and WALT (the sum of individual tenant rent [economic rent] divided by total rent multiplied by remaining lease term) are important value drivers, e.g., for core properties. When it comes to core+ or value add buildings, the upside potential and related costs are important factors. And some rather new impacts derive from ESG (Environmental, Social, and Governance) questions. In Germany we have a lively discussion about ‘stranded assets’—properties that do not match ESG criteria and thus will no longer be interesting for tenants, investors, banks—resulting in a massive decrease in value.”

"What we find is that in new industrial buildings they want everything—and there are not that many sites to accommodate them."

“Beyond location, I’d say complexity,” adds Culbertson. “Property with more complexity will trade at below fair market value.” Complexity, he explains, may involve the age of the asset and deferred maintenance, so there’s a lot of management needed. “Perhaps it’s a problem with the credit of a tenant; maybe the lease rates are below market and there are short-term leases; or there are some kind of toxics on the property,” he offers.

The attitude of the seller is also important, he continues. “A seller may be willing to be very aggressive if you want to make the case why a property may be worth more, but a lot of sellers I work with want to keep a low profile and will get less money,” says Culbertson.

“There are certainly a lot of things in the hot industrial market,” notes Brown. “The Amazons and Wayfares and Walmarts look at stud height, cube space—32-36 feet high—and how many dock doors. Insurance companies want to see a larger apron—from the end of the dock to the end of the asphalt of at least 135 feet. Parking has become more of an issue—the old one-to-one just won’t cut it.” Another factor, he adds, is tractor storage, and whether there is storage for additional boxes. “What we find is that in new industrial buildings they want everything—and there are not that many sites to accommodate them,” he summarizes.

Looking more globally, Brown says that beyond location, how a property will be accessed and how often people will use it becomes an important factor. “With sophisticated programs today, you can figure right down to the mile,” he says. In the Boston market, he adds, other factors include how long it might take to get permitted, how restrictive the zoning is, and even whether the building has a masonry front. “The final big thing we’re starting to see is that some companies are starting to restrict hours of operation,” he notes. “That impacts the utilization of the property.”


When does the evaluation process end? When you “arrive” at a value, are you content that you have the answer, or are there factors you check and double-check, or update until the last possible moment?

“I think that’s a great question,” says Brown. “In such a dynamic environment you have to be checking what cap rates are, what interest rates are, sales comps, and the newest wrinkle, what building costs are.” He cites a situation where the sprinkler system in a fairly new warehouse needed to be updated. “The sprinkler guy was having difficulty getting piping, and getting cost, and the estimate was only good for two days,” he shares.

“I’m a big checklist guy,” says Culbertson. “We have an STP Matrix™ I look at that considers the seller’s circumstances, the transaction type, and the property characteristics. The other tool we use is Cardinal Due Diligence 360™—a 221-point list we go through thoroughly to make sure we don’t overlook anything. I like the confidence I get from my checklist.”

“In the past, my value assessments usually were +/- 5% around the achieved purchase price,” says Schultheiß. “Nevertheless, we have had a seller’s market for more than 10 years now in Germany, with investors who are more desperate to deploy their capital. This leads to situations that prices achieved are not in line with my assessment, but 10% and more above. Until today, I and my team have not yet found a way to include this in a formal value assessment.”


With new technology being developed at lightning speed, are there programs available that make the assessment process easier for CRE professionals?

“Real Capital Analytics has been a really big help,” says Brown. “We constantly get pitched on all software, but you have to really analyze what you want to do, decide on one, and go with it, and not keep changing.”

He adds that to help evaluate sales property his company has developed its own proprietary software, “Which has also helped a lot.”

“I am not a friend of using artificial intelligence in valuations since every building is different,” Schultheiß asserts. “AI may help in identifying rents and prices, but at the end of the day a human being has to bring in his experience and his gut feeling. The only thing that can make the outcome of a valuation more accurate is the input—and this is where Germany can learn from other countries; we are not as transparent compared to the U.S. or U.K., where you can identify almost any relevant information about a specific property by publicly available sources.”

“Technology is a double-edged sword. Everyone can get the information, but how you analyze it is the most important.”

“Technology is a double-edged sword,” says Culbertson. “Everyone can get the information, but how you analyze it is the most important.”

Which brings us back to the invaluable contribution that human insight brings to the evaluation process. “Information is now a commodity; it used to be that the broker was the arbiter of all information, and that was the single biggest point of value,” says Culbertson. “Now that has gone away; information on the Internet is superior, easier, and cheaper.”

So, what value does the broker bring? “The ability to help make very competent decisions,” says Culbertson. “The nuance of being able to negotiate on their behalf and to be able to distill large amounts of information quickly—and in a powerful way.”


Arlon Brown, SIOR

John Culbertson, SIOR

Tobias Schultheiß, SIOR


Media Contact
Alexis Fermanis SIOR Director of Communications
Steve Lewis
Steve Lewis
Wordman Inc.

Steve Lewis is a freelance writer and president of Wordman, Inc. He can be contacted at wordmansteve@gmail.com.